Common Stocks vs Preferred Stocks | Similarities and Differences

Summary

This video explores the differences between common and preferred stocks, explaining how each provides investment returns and carries different levels of risk. Common stocks offer higher potential returns through capital gains and dividends but come with greater risk. Preferred stocks, however, provide more stable returns primarily through dividends and have lower risk due to their priority in dividend payments. The video also highlights that common stockholders have voting rights, unlike preferred stockholders.

Takeaways

• 📈 Common stocks have higher return potential than preferred stocks due to capital gains and dividends.
• 💼 Preferred stocks offer mainly dividend income with less volatility in stock prices.
• 💰 Most profits in the stock market come from stock price increases, which preferred stockholders miss out on.
• 📉 Preferred stocks have lower risk compared to common stocks as their prices don't fluctuate as much.
• 💡 Companies prioritize paying dividends to preferred stockholders before common stockholders, reducing risk for preferred shareholders.
• 🏦 If a company has limited cash for dividends, preferred stockholders get paid first, potentially leaving common stockholders with nothing.
• 🔄 With more cash for dividends, preferred stockholders receive their fixed amount, and the remainder goes to common stockholders.
• 🗳️ Common stockholders have voting rights on corporate matters, while preferred stockholders typically do not.
• 💭 Preferred stockholders have more certainty of investment returns due to preferential treatment over common stockholders.
• 🌐 The video invites viewers to comment on their preference between common and preferred stocks and encourages subscription for more investment insights.

Q & A

What are the two types of stocks discussed in the script?

The script discusses common stocks and preferred stocks.

What is the primary way investors profit from common stocks?

Investors in common stocks can profit from both capital gains and dividends.

How do preferred stock prices typically behave compared to common stocks?

Preferred stock prices usually don't move much and are contained in a tight band, with most returns coming from dividends rather than capital gains.

What is the main difference between the investment return potential of common stocks and preferred stocks?

Common stocks generally have higher return potential due to the possibility of significant capital gains, while preferred stocks offer more stable but lower returns primarily through dividends.

Why do preferred stocks have a lower risk profile than common stocks?

Preferred stocks have a lower risk profile because their prices are more stable and they have priority over common stockholders when it comes to receiving dividends.

What is the preferential treatment of preferred stockholders in terms of dividends?

Preferred stockholders must be paid their dividends before common stockholders can receive any, which gives them more certainty of their investment returns.

How does the script illustrate the difference in dividend payments between preferred and common stockholders?

The script uses an example where if a company has only enough cash to cover preferred dividends, all of it goes to preferred stockholders, leaving nothing for common stockholders.

What is the typical voting right difference between common and preferred stockholders?

Common stockholders usually have the right to vote on corporate matters, while preferred stockholders are typically structured without voting rights.

What is the impact on returns when preferred stockholders have their dividends paid first?

This preferential treatment limits the downside risk for preferred stocks and provides more certainty for their investment returns.

How does the script suggest investors might choose between common and preferred stocks?

The script implies that investors might choose between common and preferred stocks based on their risk tolerance and preference for potential returns versus stability.

What additional resources does the script suggest for learning more about investing?

The script suggests visiting the channel's website for more information about investing.